7. Suppose Ms. Smith sells her 2018 Honda Fit next year. The original cost of the vehicle was $10,000. During the time she has owned the car she has taken $3,000 dollars of deprecation on it. Ms. Williams sells the car for $9,000. What is result of the transaction?
A. An ordinary loss of $1,000
B. Long-term capital gain of $2,000
C. An ordinary gain of $2,000
D. An ordinary gain of $6,000
Correct answer:
Option:B Long term term capital gain of $ 2000.
Explanation:
The ending book value of the vehicle will be cost minus the depreciation expense, which is equal to
$ 7000 ($ 10,000 - $ 3000) . The vehicle is sold for $ 9000, therefore it's a gain of $ 2000, and since the vehicle is sold next year, that is after 12 months of owning the vehicle, therefore it is considered as a long term capital gain.
End of answer.
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